New perspectives and approaches on risk and uncertainty management in complex projects

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New perspectives and approaches on risk and
uncertainty management in complex projects
Oslo June 14, 2007
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Knowledge, organizing and culture
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Who am I?

• Jonas Söderlund, Professor, Leadership and
  Organizational Management, BI Norwegian School of
  Management
• Senior Research Fellow, KITE Excellence Center,
  Linköping University
• 1. Research on strategic perspectives on
  projects, project competence, project portfolio
  management, innovative project management
• 2. Research on Human Resource Management, HR
  organization, careers in project landscapes,
  rethinking line management

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Agenda

• Contemporary challenges
• Risks and uncertainty
• Organizational approaches
• Alternative perspectives
• Researching risk and uncertainty management

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There are a lot of things happening at the
momentand perhaps they have some effects on the
way we organize and manage projects?
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Are we moving towards a project-oriented risk
society?
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Driving forces
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Disintegrating forces necessary integration
Science and Technology SpeedSpecializationLocali
zation
Market Transformation DeregulationComplex
products and systems
Globalization Growth economiesRe-location
Rethinking Project Management?
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• How is project management affected by the
  increase in international projects? What are the
  managerial challenges in global projects? How is
  the role of the project manager affected?
• How is project management affected by the
  increased demands on collaboration between
  projects? How is the search for collaborative
  advantage affecting the way we organize and
  think about projects?
• How is project management affected by the
  increased requirements on knowledge integration
  and collaboration between knowledge disciplines?

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Three Challenges
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Challenges

• The International Challenge
• International mergers, internationalization of
  RD, international projects
• The Organizational Challenge
• Outsourcing, off-shoring, networks, collaboration
  across organizational boundaries
• The Technological Challenge
• Complex products and systems, collaboration
  across disciplinary boundaries, knowledge
  integration

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The International Challenge
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The international challenge

• International mergers
• Internationalization of RD
• International projects

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A few patterns

• Export/GDP
• Cross-border direct investments
• Internationalization of RD, RD investments
  outside and inside
• Number of people employed by foreign employers,
  number of foreign people employed by local
  companies

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Nokia a case in point
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Volvo
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The Organizational Challenge
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The organizational challenge

• Outsourcing Offshoring
• Networks Collaboration
• Problems with the decoupling principle

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• My job is being done by a stranger
• As he is cheaper and smarter
• I have become lazy and bored
• Because I have been bangalored.

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Organizational fragmentation

• Indian companies forecast that within three
  years, contract research will increase from
  todays 1 billion dollars to 8 billion dollars.
• In various project-based industries, firms
  elaborate with new contract forms, project
  alliances and integrated solutions.
• In a study of 2,114 projects in the
  pharmaceutical industry, the co-developed ones
  were performing better than the in-house
  projects.

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The Technological Challenge
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Complex Products and Systems

• Intelligent Buildings
• Computerized Trucks
• Telephone, radio, walkman, camera, computer

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One wonders
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• If
• The number of international projects increases
• The requirements on collaboration between
  partners increase
• The demands on knowledge integration and
  technology integration increase
• Then, how
• Is project management affected?
• Is the work and role of project managers
  affected?
• Is risk management affected?
• Is uncertainty management affected?

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• (1) true scientific uncertainty, in which
  adequate scientific understanding for resolving
  the uncertainty does not exist and for which the
  fund of engineering experience is not adequate to
  substitute for scientific understanding
• (2) uncertainty due to the high cost of
  knowledge
• (3) uncertainty due to the fact that some other
  person or organization has to provide the
  knowledge or information
• (4) uncertainty which will be cleared up over
  time with the normal development of the project.

• (Stinchcombe, 1985 56-57).

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And the No.1 rule of project management is..
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• Embrace uncertainty.
• Expect the unexpected. There is far more that we
  don't know and can't know than what we can
  anticipate. Be resilient to what life throws at
  you. Anticipate that your team will learn
  something along the way that can and should
  change what you have promised and how you can
  deliver on your promises. And when you take a
  set-back we all do sometime or another review
  the other nine rules for how you can work your
  way out of it.

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Risks badly understood or badly managed?
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Is this bad? Why?
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• Planning Fallacy
• Overestimating benefits
• Underestimating costs
• Anchoring
• Initial plans tend to accentuate the positive
• Skews the subsequent analysis toward optimism
• Organizational Pressure
• Internal competition
• Disloyal employees
• Bearers of bad news

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Risks and organizational approaches
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From Variation to ChaosFrom Expeditor to
Entrepreneur, From Planning to Learning, From
Expected performance criteria to Direct and
constant feedback

De Meyer, Loch Pich (2002)
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Context matters
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Management of risk as core capability
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• obtaining and framing information,
• designing a process with a long front-end
  before technical, financial, and institutional
  details are locked in, followed by rapid
  execution of the physical project,
• building coalitions that bring together varying
  information and skills and are structured to
  create strong incentives for performance and
  mitigate conflicts of interest,
• the allocating of risk to parties best able to
  bear it, and
• transforming institutional environmental risks
  through the creation of long-term coalitions that
  incorporate powerful influences on laws and
  rules.

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In search of alternative perspectives
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• projects are dynamic, iterative, and often
  chaotic systems, and project-management
  architectures must reflect this. (Miller
  Lessard, 2007 2)
• Projects are better viewed as evolutionary and
  path-dependent systems composed of episodes
  displaying different dynamics. (Miller
  Lessard, 2007 2)

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Alternative perspectives

• Risk tension
• Negative vs. positive, analysis, vs. action
• Inter-organizational risk management
• Dealing with project glitches in partnerships
• Risk management and social, embedded practice
• Translation, communication, knowledge integration
  in fragmented organizational environments
• Risk management as complex and multi-layered
  practice
• Practice and pacing in complex settings call for
  a pluralistic approach

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Researching risk management
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Research themes

• Translating uncertainty
• Translation processes, network-building and power
• Integrating uncertainty
• Knowledge integration, error detection, duality
  of project glitches
• Communicating uncertainty
• Experts and dialogue, interdisciplinarity
• Culturing uncertainty
• uncertainty cultures, barriers, institutions

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Summing up